God only knows what money and personal freedoms the tax serfs in NY will have left after Bloomberg and Spitzer get through with them.
December 09, 2005
What's the big deal with the Lord of Regulation?
Matthew T. Bodie is a Hofstra law professor who is guest blogging over at the Conglomerate blog and, in this post, wonders why fellow law professors such as Stephen Bainbridge and Larry Ribstein are critical of New York attorney general Eliot Spitzer. After extolling the merits of the Lord of Regulation's crackdown on the mutual fund and investment banking industries, Mr. Bodie then observes:
All of these accomplishments took creative application of the laws, as well as the settlement process, to bring systemic changes to entire industries. . . Now, apparently it makes one a naif to believe that Spitzer has improved things. But really, what is so controversial about what he has done? Who was in favor of the gross conflicts of interests at play in analysts' recommendations, so luridly displayed in emails? Who thought the rigged bidding in the mutual fund industry was a practice to be encouraged? Really, where's the problem?
Mr. Bodie's question is commonly asked regarding the use of the state power to prosecute or regulate through civil litigation the unpopular and greedy businessperson of the moment. "Why shouldn't (insert the name of any Enron defendant, Arthur Andersen, Martha Stewart, Frank Quattrone, Hank Greenberg, etc) be prosecuted or sued," the argument goes. "They probably did something illegal. So what if the state has to cut some corners in pursuing them. That's a small price to pay for protecting us from these evil people, isn't it?"
Well, the problem is that sacrificing the rule of law is never a small price to pay, and sacrifice the rule of law is precisely what Spitzer has done in his quest to become the Lord of Business Regulation and the next Governor of New York. Just a quick overview of Spitzer's tactics over the past couple of years exposes the widespread abuse of authority and the rule of law in pursuing his popular agenda:
Publicly playing to public envy and resentment of wealthy businesspeople by defaming Maurice "Hank" Greenberg (here and here) as well as Richard Grasso and Kenneth Langone;Criminalizing those who would take the risk of creating a market for home ownership for those who most need it;
Creating employment opportunities for his chums (noted by Mr. Bodie);
Failing to coordinate investigations with other governmental agencies;
Interference with the regulatory role of other governmental agencies (here and here and here);
His prominent involvement in the drive of U.S. governmental officials to criminalize business generally;
Transparently assisting favored corporate suitors in the acquisition of target companies;
His involvement in eviscerating the corporate attorney-client privilege and in bludgeoning dubious plea bargains and settlements from business executives; and
The destruction of professional careers and personal lives left in the wake of his abuses.
In short, the problem with Spitzer is that his campaign to regulate corporate agency costs is, as Larry Ribstein has coined it, a lottery. If the prosecution pursues a bit player such as William Fuhs or Daniel Bayly in the Enron-related Nigerian Barge case and can come up with something particularly distasteful to the jury -- such as Merrill Lynch's involvement with the corporate pariah Enron -- then it wins. On the other hand, if Spitzer slams a little guy such as William Sihpol while failing to pursue his dastardly superiors, then the government loses. This is a radical abuse of our justice system, and the carnage to the families of Mr. Sihpol, Martha Stewart, Mr. Bayly, Mr. Fuhs, Jamie Olis and others who are caught in this troubling spiral that Spitzer promotes simply cannot be responsibly dismissed as a "trade-off" of an imperfect system.
However, as great as my compassion is for members of those families, my even greater concern is for the principles of justice and respect for the rule of law upon which the success of our society is largely based. For if we lose those, then -- as Sir Thomas More reminded Will Roper in A Man for All Seasons -- "do you really think you could stand upright in the winds [of abusive state power] that would blow then?" Even wealthy business executives are entitled to justice and the protection of the rule of law in the face of the overwhelming power of the state. Not only for their protection, but for ours.